Guidant deal goes ahead- at 4 billion less:
UPDATE 2-J&J cuts price of Guidant acquisition
Tue Nov 15, 2005 08:50 AM ET
(Adds analyst comment, changes dateline from NEW YORK)
PHILADELPHIA, Nov 15 (Reuters) - Johnson & Johnson (JNJ.N: Quote, Profile, Research) cut the price it will pay for rival medical device maker Guidant Corp. (GDT.N: Quote, Profile, Research) by about 15 percent to $21.5 billion, the companies said on Tuesday, rescuing a deal that was on the verge of falling apart.
For months, investors have anticipated that J&J would seek to reduce the original price of $25.4 billion, or $76 per share, in its buyout of the cardiovascular device maker after a spate of Guidant product recalls this past summer.
Under the new terms, each share of Guidant common stock will be exchanged for $33.25 cash and 0.493 shares of J&J common stock.
Based on J&J's closing share price on Monday, the deal is worth $63.08 a share for Guidant shareholders, representing about a 9 percent premium over Guidant's closing share price.
The net cost to J&J will be $19 billion, after backing out Guidant's cash on hand.
The revised agreement comes after months of tension between the companies. Guidant last week sued J&J to try to force completion of the deal, after J&J had threatened to walk away. J&J had said the recalls of heart devices and regulatory probes had materially hurt the value of Guidant.
"The thing that comes to mind is that Guidant blinked," said Steve Brozak, an analyst at WBB Securities.
"Guidant was in a position that was one in which they had to go through with this merger," he said, noting that the company had already made much of the operational preparations for the deal. Brozak said he holds no stock in either company.
Guidant has endured scrutiny in recent months over its failure to inform doctors about potential defects in some of its implantable devices used to manage abnormal heartbeats.
The issue came to light after a 21-year-old heart patient died of cardiac arrest when his implantable cardioverter defibrillator, manufactured by Guidant, short-circuited.
Guidant eventually recalled some of its most lucrative implantable heart devices because of concerns about their safety. The recall included the Contak Renewal III and IV, which regulate abnormal heart rhythms and guard against heart failure. Sales have since resumed.
"The board believes that it is in the best interest of shareholders to proceed with the merger agreement at the revised terms. Our enthusiasm for this agreement and its potential continues," said Guidant Chairman James Cornelius.
"This agreement makes sense for Guidant shareholders and employees. It amplifies the opportunity for us to do more for patients with cardiovascular disease through a union with Johnson & Johnson."
Cornelius will become interim chief executive officer of Guidant until the deal closes. Ronald Dollens, Guidant's current president and CEO, will retire immediately.
The new terms have been approved by the boards of directors of J&J and Guidant. Guidant shareholders must also vote on the revised agreement. Pending Guidant shareholder approval, the companies expect to close the transaction in the first quarter of 2006. (Additional reporting by Lewis Krauskopf in New York) |
